AHDB Pig Market Weekly

AHDB BPEX Pig Market Weekly - 30 April 2015

Supply growth to continue – more demand needed

Latest AHDB forecasts for UK pig meat supplies show that the supply situation which has prevailed over the last year or so is set to continue. Domestic production is expected to increase further and little change is projected for the balance of trade.

Having been broadly stable in 2013, Defra’s June and December surveys suggest that the UK sow herd declined in 2014. However, this trend is not supported by production data and it seems more likely that the breeding herd has actually been more stable. The new forecasts, therefore, assume little change through 2014 and that this stability will continue in the near future. Therefore, productivity growth remain the main driver of production levels and clean pig slaughterings are forecast to carry on rising around 3% year on year. Carcase weights are expected to rise slowly during 2015 and perhaps stabilise into 2016, while sow slaughterings are set to gradually return to more normal levels. Therefore, growth in pig meat production for the remainder of 2015 is likely to similar to the rise in clean pig slaughterings.

Since mid-2013, the gap between UK and EU prices has remained well above 20p/kg. Despite this unprecedented situation, UK imports in 2014 were only slightly higher than the previous year, as pork buyers remained committed to sourcing UK pig meat. If that situation doesn’t change, it seems unlikely that imports will rise significantly in 2015. UK export growth has slowed in recent months, not helped by the weakness of the euro against the pound. This looks set to remain a factor for the rest of 2015, with only modest export growth expected as a result. Taking all these factors into account, it is clear that pig meat supplies are set to be plentiful for the rest of this year and beyond. This is likely to mean that pig prices remain under pressure unless demand picks up to match the higher supply.

Lower prices fail to support pork sales

Pork sales did not show any recovery during March, as highlighted by a 12% decrease in sales value during the 12 weeks ended 29 March, according to latest figures from Kantar Worldpanel. With the exception of pork belly, average prices fell across the board but, despite this, switching to fresh chicken, lamb and beef contributed to fewer buyers of pork during the period compared with a year earlier. The Hard Discounters were the only retailers to record growth in volume terms on the year. Decreases in overall purchases were driven by falls in pork chop and roasting joint sales. Cuts to base prices failed to drive higher volume sales, with total expenditure subsequently falling by more than the drop in quantities. Within roasting joints, leg joints were the only category to record an increase in volume sales, with all of the Big 4 retailers increasing the amount sold on promotion over the period.

The picture was slightly better for cured and processed products but the value of sales was still down across the board. Bacon was the only category for which the amount sold was actually higher but lower prices meant that less was spent on bacon than a year earlier. The quantity of sausages and sliced cooked meats sold both fell by 2%, despite prices for these products also being lower than in the same period last year.

UK pig prices

After the first increase of the year last week, the SPP resumed its fall this week. In the week ending 25 April, the EU-spec GB SPP lost 0.76p to 131.57p/kg, increasing the difference compared to the same week in 2014 to 32p. This fall comes despite a 1% drop in estimated slaughterings on the previous week at 168,800 head. Although this was 9% above last year’s level, the equivalent week in 2014 was shorter due to the Easter Monday bank holiday. With supplies still relatively plentiful and the gap between UK and EU prices still large, the market clearly remains under some pressure despite being more stable of late. Carcase weights increased marginally on the week, to 82.5kg, with average weights now over 1.5kg heavier than the same period in 2014, continuing to reflect the low cost of feed. Following four weeks of declines, the average probe measurement increased in the latest week to 11.3mm.

Following the slight increase in the SPP seen last week, the EU-spec GB APP also rose by 0.11p to 135.86p/kg. This means the APP remains just over 29p lower than the equivalent week in 2014 and reduced the difference between the APP and the SPP to 3.53p/kg.

Weaner prices painted a mixed picture in the week ended 25 April. 7kg weaners fell to £32.73 per head, down 40p on the week to leave them over £8 per head behind the level seen in 2014. However, 30kg weaners recorded a 73p increase compared to the previous week to £44.07 per head, reducing the difference compared to the 2014 level to £11.

EU production up in January

In January, 22.0 million pigs were slaughtered in the EU, according to data from Eurostat. This was around 2% up on the level seen in January 2014, despite that month having an extra working day, leaving the underlying trend of slaughterings per working day up 6%. However, this was down 1% from the previous month when there were the same number of working days but throughputs were inflated by the Christmas trade in some Member States. Marginally higher carcase weights led to total pig meat production in January 2015 being up 2% on the year at 2.0 million tonnes. Final data for the whole of 2014 shows an increase in slaughtering of 1% year on year, reaching 248 million head, which resulted in a 1% increase in production for the year at 22.1 million tonnes.

In contrast to the recent trend, Danish pig slaughterings in January recorded a large increase of 11%. Increases were also seen in leading producers Germany, up 2%, and Spain, up 4% as a result of the increase in the size of its herd in 2014. Polish slaughterings were also up as it imports more weaners from Denmark for finishing. French slaughterings continued to drop, being down 6% following a fall in the size of the French pig herd in 2014. UK slaughterings were up by 1%, with Irish throughputs increasing by 2%.Early figures from some Member States for February show a further year-on-year rise in slaughterings during the month. Given that pig prices rose during the month, this suggests some improvement in demand. However, several of the leading producers have not yet provided data.

Why is the gap between APP and SPP growing?

It is now just over a year since two new pig price series, the APP and SPP, were introduced to replace the long-running DAPP. Given that the APP includes premium pigs, it is unsurprising that it is higher than the SPP. However, the gap between them has risen over time. Last April, when the series were first introduced, it was around 2p/kg but has since increased to be closer to 4p/kg.

Feed market update

It’s been another bearish week for UK Nov-15 feed wheat futures, closing £4.30 down on the week at £120.05/t on Tuesday, following declines in global wheat and feed grain prices. There has been a lot of talk about US maize planting progress, with rumours of good weather in the past few days. However, with data released on Monday showing planting progress to be behind the 5-year average, markets could just as quickly reverse – there is still a long way to go for the crop. Pressure has also come from 12 US states detecting a deadly strain of avian influenza in poultry, which could reduce feed demand. Various market reports in the last week have also supported expectations of good production prospects. Also contributing to the fall in UK wheat values was sterling at its highest level against the US dollar since the beginning of March, as of yesterday.

UK rapemeal prices (34%, ex-mill Erith, spot delivery) rose £1 on the week to £188/t on Friday, while soyameal (Brazilian, 48%, ex-store Liverpool, spot delivery) fell a further £1 to £316/t. Soyameal remains at its cheapest level in over 3 years. The big picture for oilseed markets remains unchanged, with large soyabean crops in the Americas weighing on global prices and an expectation that US farmers will plant another big area in 2015. Another round of Brazilian trucker strikes has threatened the movement of commodities to ports and may provide mini rallies in oilseed prices but should be treated as a short-term issue for the market.

Chinese pork imports grow in Q1

The most up to date data from Chinese Customs shows a 6% increase in pork imports in the first three months of 2015. The higher level of imports will help to cover the current dip in Chinese production as a result of the fall in the size of the Chinese breeding herd. This leaves the figure historically high for the first quarter. The EU remains the largest supplier of pork to China, increasing its share of Chinese imports to 72%, with an increase in volume of 23% compared with January-March 2014. Much of the expansion in exports from the EU to China was driven by a large growth in German shipments, as Germany becoming the largest individual country supplier to China, overtaking the US. Supplies from Spain and Denmark also increased by 16% and 3% respectively.

While Chinese imports from the EU increased in the first three months of the year, volumes from the rest of the world declined. Shipments from the US in this period fell 23%, while Canadian volumes were reduced by 37%, as the falling price of pork from the EU made it more competitive on the global market. In addition, North American exports were disrupted by a labour dispute at several ports on the West Coast, which severely reduced capacity. The value of Chinese pork imports in the first quarter of 2015 was up 8% year on year at RMB 1.8 billion. In the same period, Chinese pork exports were up 6% at 20,300 tonnes, with the largest volume going to Hong Kong.

China’s pig offal imports were up 9% in the first three months of the year, at 190,800 tonnes, with the bulk of the increase again coming from the EU. The total share of the Chinese offal market held by the EU grew to two-thirds in the first quarter, with Germany again making large gains. Imports from outside the EU fell 15%, with US shipments down 6%, although it remained the largest individual country supplier to China. The value of offal imports totalled RMB 2.0 billion, up 4% compared with January to March 2014.

April Pig Market Trends out now

The April edition of Pig Market Trends (PMT) was published on Wednesday. As well as the usual summary of developments in the UK and EU pig markets and the global feed market over the last month, this month’s issue includes more detailed articles on:• UK supplies outlook. Latest AHDB forecasts for UK pig meat supplies suggest that production will continue to grow at a similar rate to recent months. With little change anticipated in the balance of trade, unless demand responds to this increased supply, this suggests that pig prices will remain under pressure. This article looks at what the forecasts may mean for the UK market.• APP and SPP. It is now just over a year since two new pig price series, the APP and SPP, were introduced to replace the long-running DAPP. The gap between them has risen over time from around 2p/kg to closer to 4p/kg. So why has this happened? Analysis of the reasons for the growing gap can be found in this article.• Global outlook. According to recent forecasts, pork supplies in 2015 are expected to increase in most major global producers, with the exception of China but global trade is expected to fall. The situation could put further pressure on prices, which have been falling since mid-2014. You can read more about the latest forecasts for the global pig market in this article.• Private Storage Aid. The current PSA scheme for EU pig meat came into force on 9 March. So far, the scheme appears to have had little impact on the EU pig market. So why has the impact been less apparent than during previous PSA periods? To find out about some of the factors influencing the situation, read this article.Pig Market Trends is available free of charge. You can subscribe by e-mailing redmeatmi@ahdb.org.uk. Recent editions can be downloaded from the BPEX website.